Have you received a letter advising you that the credit limit on your credit card has been increased due to good management of your facility? The National Credit Act, 34 of 2005 (“the Act”) regulates what credit providers can do in this regard.
- DefinitionsTo understand the application of the Act, it is important to understand the distinction between an incidental credit agreement and a credit facility.An incidental credit agreement is defined as “an agreement in terms of which an account was rendered for goods or services that have been provided to the customer, or goods or services that are to be provided to a customer over a period of time and either or both of the following conditions apply:
- A fee, charge or interest became payable when payment was not made on or before a determined date;
- Two prices were quoted for settlement of the account, the lower price being applicable if the account is paid on or before a determined date.
A credit facility is defined as “an agreement if in terms of that agreement a credit provider undertakes to supply goods or services as determined by the consumer from time to time and either:
- defer payment or to repay the credit provider any part of the amount due, or
- bill the consumer periodically for any part of the cost of goods or services, and
- a charge, fee or interest is payable to the credit provider.
A credit facility would be used where, for example in the case of a credit card, a customer only repays part of the amount due.
With an incidental credit agreement the full amount due becomes payable by the customers on a determined date, i.e. 30 days from date of invoice or statement, failing which interest is payable. If the full amount is paid on due date, a settlement discount may be applicable in this instance and if the amount is paid late, interest will be charged on the amount due.
The fact that the customer does not pay in full and the transaction attracts interest does not create a credit facility in terms of the Act since that is not what was contemplated when the goods were provided. It is both the customer and the credit provider’s intention that the goods will be paid for in full on a determined date.
- ApplicationThe Act is applicable to:
- incidental credit agreements only 20 days after the supplier charges a late payment fee or interest and then only certain sections of the Act apply
The Act does not apply to a credit agreement where:
- the consumer is a juristic person whose asset value or annual turnover exceeds the threshold set by the Minister from time to time
This means that the Act does not apply to customers who are companies with an annual turnover exceeding R1 million.
The Act will therefore only be applicable to individual customers or small companies and then only 20 days after the transaction attracts interest due to late payment.
- Increases in credit limit under credit facilitySection 119 of the Act prescribes conditions under which a credit provider may increase the credit limit under a credit facility. This can only be done with the written consent of the consumer in response to a written proposal by the credit provider, or unilaterally provided the consumer has, at the time of applying for the credit facility, specifically requested the option of having the credit limit automatically increased from time to time.
- SummaryThe Act does therefore not apply to most customers who are juristic persons. The small companies and individual customers the Act does apply to, will only have a limited affect on those transactions where the customer is in default and a late payment fee has been charged.In either event, a credit provider may increase the customer’s credit limit unilaterally in terms of an incidental credit agreement as the Act only makes provision for transactions defined as credit facilities. The Act does not restrict the unilateral increase of a credit limit by the provider of goods in terms of an incidental credit agreement.